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Practical Approach to Debt Recovery

By Paul Omobhude Esq. , Associate Counsel, AAA Chambers


To maintain and grow a functional economy, investors often require loans which are made available by commercial banks and other financial institutions using its depositors’ funds upon security furnished for the repayment of such loans by the borrowing investors. As simple as the credit transaction may appear, most of the times borrowers default in repaying the loans availed to them, which results in the Creditors/Banks adopting several practical approaches to recover the indebtedness of the borrowers now Debtors. This topic, therefore, evaluates the practical approach available to the Creditor to recover the Debtor’s indebtedness. 

Here are some of the practical ways debt can be recovered depending on the best style applicable in the circumstance.

  1. Summary Judgment
  2. Insolvency: Bankruptcy and Winding Up
  3. Receivership
  4. Foreclosure of Mortgage Property
  5. Mareva Injunction
  6. Recovery of the Indebtedness of a Deceased Debtor
  7. Criminal Petition for Illegal Diversion of Funds, Obtaining by Fraud and Issuance of Dud Cheque

Having listed the practical approach a Creditor can adopt to recover a Debtor’s indebtedness, it is apposite to briefly discuss these practical approaches/ways beginning with Summary Judgment.


Summary judgment is a fast approach to recover the indebtedness of a person or entity especially when the debt is undisputed or has been admitted by the writing of letters or issuance of cheques or other forms of communication. As the name goes “summary judgment” is a judgment obtained summarily, without going through the rigours of a full trial.  In some Nigerian jurisdictions like Lagos, it is provided for under Order 13 of the High Court of Lagos State {Civil Procedure} Rules 2019, whereas in Abuja it is provided for under Order 11 of the High Court of the Federal Capital Territory {Civil Procedure} Rules 2018, and Order 35 of the High Court of the Federal Capital Territory {Civil Procedure} Rules 2018, which also provides for actions in the “undefended list”

It should be noted that the sum being claimed must be liquidated money demand {that is the sum must be arithmetically ascertainable and precise}. The Creditor must also have the belief that the Debtor has no defence to the sum being claimed.

To arrive at this belief that the Debtor has no defence to the claim, he is expected to furnish the Court with some relevant documents which will aid in proving the liquidated sum. The documents are:

  • Contract documents such as loan offer letters, duly executed deeds of guaranty and indemnity {where suing the guarantor of the loan}  from which the claim or debt arose
  • Statement of account or other instruments like receipts, invoices, vouchers, tellers establishing the debt that is being claimed  
  • Letters of demand from the Creditor and letters from the Debtor showing admission of some debt or obligation on the part of the Debtor,
  • Once the above conditions and criteria are met, then the applicant can proceed with the summary judgment procedure or the undefended list procedure to recover the indebtedness of the Debtor.

Once judgment is obtained, the Creditor can enforce the judgment against the Debtor, without further delay. You can read our article that bothers on enforcing a judgment


Insolvency occurs where the Debtor’s liabilities exceed assets. Although, where his liabilities doesn’t exceed his assets his liquid cash is insufficient to settle his indebtedness. Insolvency usually occurs in two ways – first where it has to do with a person or an organization, who is unable to pay his debt which is bankruptcy, and the other is where a corporate entity is unable to offset its liabilities with the assets on ground. This procedure can be adopted so the Debtor can be declared insolvent, which will empower the Creditor to dispose of his assets in Order to liquidate his chambers


A person is said to be bankrupt where he is indebted to the tune of not less than N2000 and he is unable to pay within 14 days of service of ‘bankruptcy notice’ on him. It applies only to natural persons.

Conditions for the Presentation of A Bankruptcy Petition

  • The Debtor’s indebtedness must not be less than N2000
  • the debt must be a liquidated sum and arithmetically ascertainable
  • The Debtor has committed any acts of bankruptcy under section 1 of the Bankruptcy Act

How to Recover the Debt of A Person Through Bankruptcy Proceeding 

Where a Debtor is unable to pay his debt which must not be less then N2000.00, the Creditor will apply to the Court for issuance of a bankruptcy notice alongside his petition that the Debtor is declared bankrupt. The bankruptcy notice gives the Debtor notice of the bankruptcy action against him and also to pay his debt.  Where after the issuance of the notice the Debtor refuses to pay or unable to defend the bankruptcy petition filed against him, the Court would then issue a receiving Order.

The implication of a receiving Order is that the Debtor has now become bankrupt and his assets now vested in a receiver. [Section 7{1}{c} of the Bankruptcy Act]. Once a receiving Order is made against the Debtor, the Debtor would file a statement of affairs or arrangement stating how he intends to distribute his assets to liquidate his debt. The Creditors are at liberty to accept the Debtor’s arrangement or refuse same. 

Priority of Payment in Bankruptcy Proceedings {SECTION 36 BANKRUPTCY ACT}

  • All debts due from the bankrupt to the State
  • All wages or salary  of any employee in respect of services rendered 4 months before the date of the receiving Order, not exceeding N300;
  • A landlord or other persons who have a right or lien over any goods or effects of a bankrupt within three months before the date of the receiving Order was made
  •  All debts proved in the bankruptcy shall be paid pari passu.
  • If there is any surplus left after these payments have been made, the surplus will be applied to payment of interest from the date of the receiving Order was made

Who Can Apply for the Discharge of A Bankrupt?

  • The bankrupt or Debtor can apply to the Court for an Order discharging him from bankruptcy. 
  • The Court on its own application or on the application of the receiver or trustee [Section 28 (2) of the Act]
  • By effluxion of time: a bankrupt shall be discharged after five years from the date a receiving Order was made against him. [Section 31 of the Act]

Implications of Declaring A Person Bankrupt

  • A bankrupt person is disqualified from holding public offices like being voted as president or vice president, he is also disqualified from being appointed or sit or vote in any governing board whether corporate or unincorporated bodies.
  • Disqualified from being appointed as a justice of the peace or an allowed to practice in any regulated profession   {Section 126 of the Bankruptcy Act}
  • It Disqualifies the Debtor from access to credit or loans aaa chambers


The process of winding up or liquidating a company is the legal means of ending the life of that company. The Black’s Laws Dictionary defines “winding up” as the process of settling accounts and liquidating assets in anticipation of a partnership’s or a corporation’s dissolution. 

Where a company is unable to pay its debt as at when due, such company can be wound-up. Section 408 {d} of the Companies and Allied Matters Act, 2004 provides that a company may be wound up if the company is unable to pay its debt.

Section 409 of CAMA provides that “A Company shall be deemed to be unable to pay its debts if-  

  • It is indebted in a sum exceeding N2,000 and unable to pay same 3 weeks after demand has been made
  • execution or other process issued on a judgment, Act or Order of any Court in favour of a Creditor of the company is returned unsatisfied in whole or in part; or 
  • the Court, after taking into account any contingent or prospective liability of the company is satisfied that the company is unable to pay its debts.” 

Section 410 (1) of CAMA,  gives a Creditor right to present a winding-up petition against a company where the company is unable to pay its debt. 

Section 409 of CAMA provides that the company must be served with a statutory notice of demand requiring the Debtor company to within 3 weeks pay or respond to the demand of the Creditor. Where the company fails or neglects to pay the debt within the statutory period, a winding-up petition can then be issued against the company for its inability to pay its debt. 

How to Recover the Debt of A Company Through Winding Up Petition

  • The Companies Winding-up Rules 2001, Rules 16-30 provides the steps for winding up and the rules to be complied with when winding up a company.
  • A Creditor who desires to present a winding-up petition against a company for its inability to pay its debt must present his petition to the Court registry stating the grounds upon which he is relying.
  • Upon application by the Creditor and after the requirement for the advertisement of the petition is met, the Court can then appoint a provisional liquidator. A provisional liquidator has the power to bring or defend an action in the company’s name or carry on the business of the company for the purpose as may be necessary for its winding up.
  • Section 423 of CAMA provides that the liquidator shall take into his custody, under his control, all the property and choses in action to which the company is or appears to be entitled to.
  • When the petition has been proved, the Court will make an Order for winding up the company.
  • When an Order for winding up has been made, or for a provisional liquidator, the Official Receiver is to be notified of such Order by the Registrar not later than 5 days after the Order was made. The registrar is to send the Official Receiver 3 sealed copies of the Order.
  • One copy of the Order would be served on the company at its registered office or at its principal or last known principal place of business. If the Order is for the company to be wound up by the Court then a copy of the Order shall be forwarded to CAC in compliance with Section 416 of CAMA

Priority of Payment

There is a hierarchy that determines the Order in which a company’s assets can be distributed in liquidation. This is strictly enforced by the Courts.  All secured Creditors have the first right to the assets of the wound-up company and are usually paid out before there is a distribution. After this is paid out, any remaining debts are paid in the following Order of priority:

  • The costs, charges and expenses involved in the liquidation. Sec. 484 of CAMA
  • All wages and salaries payable to employees, including holiday pay.– Sec. 494 CAMA
  • Unsecured Creditors and any interest that is attached to any debt (but only if the debt became due before the liquidation process began). Sec. 498 of CAMA
  • Any debt owed to shareholders of the company, such as dividends or profits.


This applies where a Debtor executes an instrument like a Deed of all assets’ Debenture or such instrument that empowers the Creditor to appoint a receiver/manager upon default in repayment of the loan. The Creditor can either apply to the Court for the appointment of a receiver or activate the receivership clause contained in the deed of debenture for all asset holders.

The Black’s Law Dictionary defines a receiver as a person appointed by Court for the purpose of preserving the property of a Debtor pending the action against him or applying the property in satisfaction of a Creditor’s claim, whenever there is a danger that, in absence of such appointment, the property will be lost, removed or injured. Section 387 of the Companies and Allied Matters Act provides for persons who shall not be appointed or act as a receiver or manager. They are as follows:

  • An infant
  • Any person found by a competent Court to be of unsound mind
  • An undischarged bankrupt, 
  • A director or auditor of the company
  • Any person convicted of any offence involving fraud, dishonesty, official corruption or moral turpitude and who is disqualified under section 254 of this Act.

 Appointment of A Receiver

A receiver can be appointed in any of the following ways:

  • An appointment under an instrument  pursuant to the power contained in a loan or mortgage instrument {Section 390 CAMA}
  • Appointment under Statute  {Section 209(1)(a)(b) and (c) of CAMA}
  • Appointment by an Order of Court

Requirements of Notification and Registration of Appointment of A Receiver

Whenever a receiver is appointed either under an instrument or under a statute or by Order of Court, the law requires such appointment to be brought to the notice of CAC within 14 days of the appointment. Furthermore, the appointment must be registered with 7 days from the date of such appointment [Sections 392 and 206 of CAMA] .

Failure to notify the CAC of the appointment of a receiver is an offence and attracts a fine not exceeding N25 for every day of the default. Also where a person fails to register the appointment of a receiver with the CAC such a person shall be guilty of an offence and liable to a fine of N50 for every day the default continues. 

Duties and Powers of A Receiver 

Some of the duties and powers of a receiver are:

  • The right to take possession of the property and assets of the company and protect the company;
  • Receive rents and profits and discharge all out-goings in respect of the company and realize the security for the benefit of those on whose behalf he is appointed;
  • To sell or otherwise dispose of the property of the company by public auction or private contract; 
  • Power to do all acts and to execute in the name and on behalf of the company any deed, receipt or other document and 
  • Power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the company. Section 393 {1} of CAMA.

Distribution of Proceeds

Section 391 of CAMA provides that all monies realized from a sale of assets, rents or debts shall be distributed by the receiver in accordance with his instrument of appointment or in a manner set out by the Court to liquidate the Debtor’s indebtedness. By Section 182 of CAMA, monies in the hands of the receiver may be applied as follows:​​ 

  • The cost of realizing the assets;
  • Other expenses of the receiver including remuneration and costs;
  • Costs, exchanges, other outgoings and the expenses of trustees under the debenture trust deed, if any, including their remuneration;
  • Cost of debenture holder’s action (if any);
  • Preferential debts out of the property subject to a floating charge in priority to the claims of the debenture holder​​ 
  • The debenture debt with interest accruing thereon up to the date of chambers


Mortgage refers to the conveyance of a property by the mortgagor [Debtor] to a mortgagee [Creditor] as security for a loan. Where the Debtor fails to liquidate his debts or defaults in liquidating his debts (whether principal or interest), the Creditor can apply to Court to foreclose the Debtor’s right to the property used as security for the loan to discharge the debt.

A foreclosure Order gives the Creditor or mortgagee the right to acquire the mortgaged property used as security for the loan free from the mortgagor’s equity of redemption. Equity of redemption refers to the right of the mortgagor in law to redeem his or her property once the debt secured by the mortgage has been discharged.

Conditions Necessary for A Foreclosure Order

For a mortgagee to apply for a foreclosure Order of the mortgaged property, the mortgagee’s power of sale must have arisen and this depends on two factors namely:

  • The debt must have become due. 
  • The power of sale must have become exercisable
  • The power of sale becomes exercisable on the happening of any of the following: 
  • Demand notice requiring payment of the mortgage money has been served on the mortgagor and default has been made in the payment of the money. 
  • Some interest is in arrear and remains unpaid after becoming due or there has been a breach of some provision or obligation contained in the mortgage
  • The action must not be statute-barred. To enforce a mortgage transaction, the action must be brought within 12 years from the date the right of action accrued. 

Who Can Apply for A Foreclosure Order

  • Legal Mortgagee
  • Equitable Mortgagee
  • Assignee

How to Recover A Debtor’s Debt by Foreclosure

Where the Debtor defaults in repaying his loan or fails to completely liquidate same, the Creditor will take out a writ of summons or originating summons seeking the following reliefs:

  •  A declaration that due to the mortgagor’s default or failure to liquidate partly or wholly his indebtedness to the mortgagee the mortgagor’s right to equity of redemption has ceased. 
  • An Order of Court to foreclose the mortgagor’s right of equity of redemption, the mortgagee 
  • Where the applicant is an equitable mortgagee, he may seek a declaration that due to the default of the mortgagor, he is entitled to be considered as a legal mortgagee.

Documents/Facts the Applicant Must Disclose in Seeking A Foreclosure Order

Full particulars of the mortgage deed, including:

  • The amount due {principal and interest} which can easily be ascertained from the Debtor or mortgagor’s statement of account or other relevant documents;
  • The date the sum was due {date fixed for redemption}; 
  • Nature of the security furnished for the loan;
  • Relevant covenants in the deed of mortgage, description of the mortgaged property, title documents of the mortgaged property.
  • The default giving rise to the right of foreclosure
  • Steps the Creditor or mortgagee has taken so far to recover the debt

The Court having heard the Creditor’s application may foreclose the Debtor or mortgagor right of redemption.  An Order of foreclosure of the mortgaged property must be stamped and it must also be consented to by the governor of the state. Non-compliance with this provision renders any transaction or instrument which purports to vest in any person an interest in the mortgaged property null and void {Section 22 and 26 of the Land Use Act}.


it is always advised for Creditors/Banks to approach the court for Mareva Order when there is the likelihood or suspicion that the Debtor may dissipate or dispose of his assets before the case is concluded in court. The Creditor has the right to apply to the Court for an Order of Mareva injunction to restrain the Debtor from removing or dissipating such assets till the final determination of the case so as not to render the judgment of Court nugatory.

In AKINGBOLA V. CHAIRMAN, EFCC [2012] 9 NWLR (PART 1306) 475 AT 500, the Court defined Mareva injunction as a preservatory specie of an injunctive Order, that is, one that prevents the dissipating or dealing with the properties (pending the determination of a dispute) that could render the judgment of a Court or the resolution of that dispute nugatory.

The injunction got its name from the English case of MAREVA COMPANIA NAVIERA SA VS. INTERNATIONAL BULKCARRIES SA (1980) 1 AII ER 213.

Conditions for the Grant of A Mareva Injunction

The conditions for the grant of a Mareva injunction are as follows:

  • There must be a real and imminent risk of the Debtor removing his assets from the jurisdiction and thereby rendering nugatory any judgment which the Creditor/Bank may obtain.
  • The applicant must make full disclosure of all material facts relevant to the application i.e. the nature of debt owed and the sum being owed, documents showing the debt being owed and a document showing how the debts came to be.
  • The applicant must give full particulars of the assets of the defendant within the jurisdiction which he seeks to preserve.
  • The balance of convenience must lie on the side of the applicant; and
  • The applicant must be prepared to give an undertaking as to damages.

A Mareva injunction restrains the Debtor from removing or interfering with his assets the suit is completely decided. However, it must be noted that a Mareva injunction is preservatory in nature and does not operate to attach the assets of the defendant in executing the judgment of the Court.

Procedure for the Grant of A Mareva Injunction

The Creditor is required to make an application to Court usually by motion exparte {except Court Orders otherwise} supported by an affidavit clearly disclosing facts and reasons which clearly supports the conditions for the grant of the application. It is also necessary for the Creditor to also file his originating processes alongside the motion for Mareva injunction.

Recovering the Indebtedness of A Deceased Debtor

Death is certain, hence a Creditor who has in good faith lent money to a Debtor who becomes deceased ought to have a right in law to proceed to recover such debt notwithstanding the Debtor’s death. In law, a deceased person is not a juristic person [that is cannot sue or be sued], –  See the case of APC v. INEC (2015) 8 NWLR (Pt. 1462) S.C. 531. Consequently, the only way available to the Creditor to recover the deceased’s indebtedness is to go after the deceased’s “estate”. 

The Black’s Law Dictionary defines “estate” as “the property that one leaves after death; the collective assets and liabilities of a dead person”. 

How to Recover A Deceased Debtor’s Indebtedness

As a general rule by the doctrine of privity of contract, only a party to a  contract that can be bound by it. However, there are some exceptions to this rule:

  • Where the beneficiary is a co-owner of the asset where the debt arose from.
  • Where the beneficiary guaranteed the debt of the deceased Debtor.
  • Also, in some jurisdictions, where any property acquired by a spouse during a marriage is considered as a communal property/jointly owned property and both spouses have joint rights and liabilities irrespective of one spouse’s death.

The Administration of Estates Law of Lagos State provides that Creditors are among persons who can apply to administer the estate of the deceased. Hence after 21 days, he is entitled to apply to the probate registrar for grant of letter of administration to administer the estate. However, where other persons so entitled to apply for such letters have already applied, the Creditor is at liberty to file a caveat to challenge the grant of Letters of Administration or Probate (especially when properties in the estate were used as security for the loan obtained by the deceased). – Order 63 Rule 18 (4) of the High Court of Lagos State (Civil Procedure) Rules 2019. The caveat has a lifespan of 3 months. 

After the caveat is issued, the Probate Registrar is to notify the Applicant who in response would issue a “warning” – Order 63 Rule 18 (8) of the High Court of Lagos State (Civil Procedure) Rules 2019. The warning or a copy of it is to be served on the caveator [Creditor] who must respond within 8 days of service and enter an appearance in the Probate Registry. – Order 63 Rule 18 (9) & (10) of the High Court of Lagos State (Civil Procedure) Rules 2019.

Aside of entering a caveat to challenge the grant of letters of administration or probate, the Creditor may also by Originating Summons commence an action in determining any question affecting his right or interest as it relates to the estate of the deceased. Order 64 Rule 9 (1c), (2a) and Order 5 Rule 4 (1) of the High Court of Lagos State (Civil Procedure) Rules 2019.

The Priority of Payment When Estate of the Deceased is Insolvent (Part 1 to the Schedule of the Law)

  • The funeral, testamentary and administration expenses.
  • All rates due from the deceased from the date of his death and payable within 12 months after his death.
  • All wages and salaries of servants in respect of services rendered during 4 months before his death not exceeding N100.00.
  • All wages of any labourer or workman not exceeding N50.00 in respect of services rendered to the deceased two months before his death.

All amounts due in respect of compensation under the Workman Compensation Act which accrued before the death of the deceased.


Generally, debts are not recoverable through criminal petitions or presentation against Debtors since loans resulting in debts arises from contractual obligations. However, Creditors sometimes employ criminal petition against the Debtor for issuance of dud cheques in liquidating debts, illegal diversion of funds and obtaining by fraud which will ensure the debts are paid back, in Order to ensure the petitioner withdraws his petition for possible criminal petition.

Criminal Petition In Respect of Dud Cheques

A dud cheque,  popularly known as “bounced cheque”, is a cheque issued by a bank customer whose account is in debit or whose credit balance is lower than the amount indicated on the cheque. A Creditor can proceed to petition against the Debtor where the Debtor issues a dud cheque or other instrument to the Creditor to liquidate his debt. Section 1(a) (b) of Dishonoured Cheques Offences Act, 1977 criminalizes the act of offering dud cheques for credit, goods and services as an offence.

On conviction under Dishonoured Cheques Offences Act, 1977; an individual shall be sentenced to imprisonment for 2 years without an option of fine, while in the case of a body corporate (Companies, Business and Non-Government Organisations, etc) it shall be sentenced to a fine of not less than N5,000. A company involved in the issuance of dud cheques is liable as a corporate body while its owners and staff by whatever title or description that consented, connived or was negligent in duty are punishable and liable individually.  

Criminal Petition With Respect to Obtaining by Fraud or Illegal Diversion Of Funds.

Where a Debtor obtains funds by false pretence or fraud or misappropriates credit facility granted to him for other purposes other than for the purpose for which it was granted, the Creditor is at liberty to proceed against such a Debtor by filing petitions to appropriate agencies against such Debtor.

In Nigeria, a Creditor can proceed under Sections 311 and 312 of the Penal code Act for criminal breach of trust, that is, where the Debtor misappropriates or uses credit availed to him in a dishonest manner or diverts the credit on other purposes other than for which it was granted. Anyone found guilty of committing a criminal breach of trust is liable to a term of imprisonment which may extend to seven years or with fine or with both.

Section 419 of the Criminal code Act, also provides that where a person obtains from any person anything capable of being stolen or induces any other person to deliver to any person anything capable of being stolen, is guilty of a felony, and is liable to imprisonment for three years. If the thing is of the value of one thousand naira or upwards, he is liable to imprisonment for seven years. It is immaterial that the thing is obtained or its delivery is induced through the medium of a contract induced by the false pretence. 

As earlier stated, generally debts cannot be recovered through criminal litigation, however a Debtor faced with criminal charges under sections 311, and 312 of the penal Code Act and Section 419 of the Criminal Code Act may be forced to enter into an agreement or plea bargain by virtue of Section 270 of the Administration of Criminal Justice Act, wherein the Debtor would undertake to refund the Creditors money for the charges to be dropped.

Challenges to Debt Recovery Practice in Nigeria

One of the major challenges to debt recovery in Nigeria is the delay of cases in Courts


  • Special Courts or tribunals should be established to handle debt recovery matters.
  • Specialized Judges should be appointed to adjudicate over debt recovery cases.
  • Every judgment debt should be paid into an interest yielding account while on appeal, to be managed by Court.
  • All debt recovery cases should be heard within a specified time frame to prune down on time wastage and unnecessary delays. 
  • Debt recovery should be incorporated into statutes for easy enforcement.
  • Every person who lies on oath with respect to their indebtedness should be severely penalised by the Court. 


Growing a strong economy and attracting foreign investors into the economic space of Nigeria will be firmly boosted when our debt recovery laws and procedures are made simpler and more effective to discourage chronic Debtors from taking advantage of debt recovery laws in Nigeria.







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